Silicon Valley Bank collapse and its effects

[deaddmwalking]

Do I thinking letting the 2nd and 3rd largest bank collapses from a historical perspective just happen would have caused a general banking collapse?

The honest truth is I don't know - nobody CAN be sure because we didn't do it. But I definitely think it was possible. We're talking about human psychology. If you think your bank might fail you SHOULD pull all your money, guaranteeing that it WILL fail. It would be better I'd nobody took their deposits out but if ANYONE does it's in your interest to be first in line.

I think that if no action had been taken that at least 6 additional bank failures would have happened by now. That sounds like 'contagion'.

But mostly I think the Federal Reserve has raised interest rates to far, to fast. I don’t think it's working to 'tame inflation' and it's mostly giving billionaires free money for having money. It seems to be putting a lot of pressure on stocks where many people have their retirement savings. I think our financial system tends to reward short term thinking and regulators haven't done enough to change that. But there's also no political will there.

So I think you can make a case that letting a bank fail and a few billionaires lose maybe everything could have caused us to take a real hard look at thr financial sector and design it in a way is more fair and beneficial to society, but I definitely suspect that was never going to happen.

I also think that a lot of people have made a pretty compelling case that this could have spread into a major banking crisis. As banks shore up liquidity they would stop making loans. You wouldn't be able to buy a house or a car if you didn't already have cash in hand. Instead of hurting billionaires it would hurt regular people. That seems like how these things usually go.

I think there will be a lot of speculation about whether it REALLY would have been catastrophic, but I don’t think the answer is 'undoubtedly no'.

[PseudoStupidity]

I also think that a lot of people have made a pretty compelling case that this could have spread into a major banking crisis. As banks shore up liquidity they would stop making loans. You wouldn't be able to buy a house or a car if you didn't already have cash in hand. Instead of hurting billionaires it would hurt regular people. That seems like how these things usually go.

I think there will be a lot of speculation about whether it REALLY would have been catastrophic, but I don’t think the answer is 'undoubtedly no'.

You wouldn't be able to buy a house or a car if you didn't already have cash in hand. Instead of hurting billionaires it would hurt regular people. That seems like how these things usually go.

buy a house... Instead of hurting billionaires it would hurt regular people.

buy a house...regular people.

Dead, be honest, do you think regular people in the US can buy houses? You already think they own stock (they don't), but now you think they're buying houses!? Talk to regular people for once in your fucking life. Regular people in the US don't even have $500 in savings, they aren't buying houses.

[Kaelik]

Regular people is all the people who make slightly more then me. This is how all people in the US suburbs are trained to think.

[Thaluikhain]

Assuming that it's important to stop banks collapsing, why is throwing money at the people responsible for their near collapse the only way of doing it?

[deaddmwalking]

Dead, be honest, do you think regular people in the US can buy houses?

Yes, I think 'regular people' in the US can and do buy houses. It appears that 65% of households own their home.

You already think they own stock (they don't), but now you think they're buying houses!?

According to the US Cenus, over 60% of workers have a retirement plan, and the majority have a 401(k) which typically includes stocks. While that source only shows 35% of workers with a 401(k), Gallup indicates that 55% of Americans own stock.

Talk to regular people for once in your fucking life. Regular people in the US don't even have $500 in savings, they aren't buying houses.

Look, it's easy to assume that 'most people are just like me', but that's definitely not what I'm doing. I know the median household income in the United States is $74k. My household adjusted gross income in 2022 was $201,038.00 (but it'll be lower this year). That makes me extraordinarily fortunate relative to the average American. A decade ago it was $90k, and before that it was substantially lower. I'm also not from generational wealth - I've been very lucky to stumble into a stable job that pays very well. I'm not complaining about the quality of my life or material objects, but it's not as glamorous as you may imagine. For instance, I drive a 2009 Hyundai Sonata. My personal situation aside, I believe that our economy is unfair. I honestly think that every worker should be able to earn a livable wage, and I think $100k ballpark is what that should be. I also believe that the system is fragile - my wife and I rely on our wage income rather than investments or tenants, etc, so if we lose the ability to work we lose everything.

None of that means that having the banks start failing would be a good thing. I am 100% certain that I wouldn't have a car if I hadn't been able to secure a bank loan and I'm 100% certain I wouldn't be in my house if I couldn't secure a bank loan. A lot of people that are well off want to 'pull up the ladder behind them' so future generations can't achieve what they did. I don't. Reduced liquidity means higher standards for loans and fewer of them overall - that means that fewer people will be able to buy a house which remains the primary generator of both household and generational wealth in this country. I'm all for fixing the system, but don't dismantle the best parts of the existing system without something else in it's place. Billionaires are already trying to turn every American into a tenant - don't make it easier.

[deaddmwalking]

Assuming that it's important to stop banks collapsing, why is throwing money at the people responsible for their near collapse the only way of doing it?

Who do you think is responsible for the collapse/near collapse?

If you deposit money in a bank, that's your money. If that bank is going to fail, you will want to pull your money out. If you didn't, you're just giving your money to people that failed in their fiduciary responsibility. There are potentially a lot of questions about how/whether you should trust 'institutional banking', but ultimately, you don't have a choice. If you have 1,000 Employees who are owed $5,000 because today is a payday, you need to have $5,000,000 in the bank. The FDIC insures only $250k per depositor, so if you're going to be able to use a bank to pay employees you must have faith that banks are run well and that your money is safe. Regulators have a responsibility to ensure that banks are run well, maintain sufficient capital, etc. Banks have attacked regulations and that's a whole separate problem, but that's not YOUR problem as a depositor - you're just trusting that the system works and the money you deposited is there when you need it.

It's hard to 'feel bad' for people with $1,000,000 in the bank when (I assume) everyone on this board has less than $250k in their account, so they were protected anyway. But it's definitely true that some of SVBs customers wouldn't be able to pay employees, so they'd either have to ask those employees to work for free until they generated more money to replace what they lost or also go out of business. And maybe it wouldn't be a bad thing in the long term if Uber, and Lyft, and Doordash become defunct overnight and everyone that works for them no longer had that revenue stream - but there's definitely going to be a lot of short-term pain.

The people that managed SVB clearly didn't have a good plan for a higher interest environment. The crux of the problem is that more than 75% of their investments were extremely long term (hold until maturity) and the rate of return on those was significantly lower than short term options. My bank is offering a 4% return for a 23-month CD; Robinhood Gold is offering a 4.15% return on uninvested cash that's available WHENEVER without locking in a period - if your bank is offering less than 1% for your deposits there's good reason to start thinking about moving it - at least if you have the type of money that FDIC insurance stops applying. But those people aren't getting bailed out.

I think there were probably better options that could have prevented the bank from failing at all. But that might have prevented any consequences to the executives who planned so badly. Given that a bank failing is bad the fact that fallout has been contained so far seems like a good thing.

[Kaelik]

No one in the entire world supports pulling up ladders more then you. Literally every post you have very made about politics is some variation of "I oppose anything that would actually stop the steady concentration of wealth in the richest hands. Your stats are dogshit and contradict your own claims. Do you know what a household is? Seems like you don't! (And also imagine linking to a thing saying 65% of households own their own home and being completely incapable of seeing how that number doesn't tell you anything because the idea of an adult living with their parents is something you can't even imagine.)

Again. Every time you post "allowing any rich person ever to lose even a single dime will result in a total collapse of the economy and also the economy is perfect right now which is why we need to make things worse for everyone poor and funnel more money into the bankers hands so they keep lending money to people who can buy houses" you are skipping the part where you provide any reason at all to believe that this is actually going to cause a banking collapse.

I could stupidly post like you do by saying "obviously the biden bank bailout is catastrophically destroying the retire economy and causing no one in the entire country to ever be able to buy a car because giving bankers carte blanche to gamble with depositors money knowing that they will always be 100% fdic insured with no caps means they could create the situation where they all overbet and lose money in the future, and since we know that if a catastrophe is possible if we do something then it also definitely 100% will happen and we have to take steps to prevent it. And that's why the biden bailout is bad." But I don't because it's the analysis of a fucking child. It's stupider then that either the particle accelerator causes a black hole or it doesn't, so its 50/50, guy.

Now is 100% fdic insurance up to an infinite amount of money MORE LIKELY to cause a massive economic collapse then letting svb go under? Yes obviously. All of economic collapses come from rich people gambling aggressively with other people's money and then trying to be the person not holding the bag. But it isn't certain, its probably only like 15% chance it happens before we have an economic collapse from massive climate disasters.

You are pointing to a like 2% chance thing and saying "obviously if this happens it is very bad so we have to bail out the deliberate bank run because our bank made bad decisions people" but notice that all your arguments point to like 3-6 banks going down and equating that with a total economic collapse.

The reason you are doing that is because the only thing you care about is maintaining the status quo that keeps you well off, and you in your own head associate 4 banks going down and rich people losing money and some minor squeezes on other banks that don't effect the vast majority of people as just as bad as a catastrophic meltdown that is much less likely.

[Kaelik]

First off you can actually easily get millions of dollars insured by the fdic with spread programs and accounting trickery. Big companies do this all the time. The reason svb investors didn't do that is because they wanted the clout of banking at svb which seemed cool in their very dumb circles or because they borrow a couple million from svb who then made them sign a contract to keep all deposits at svb.

Secondly, if people lose their jobs because svb companies go under they can just fucking get unemployment insurance and then get a new job in the extremely tight job market.

This is more pretending that one bank going under because of its incredibly bad decisions and bribing regulators to look the other way is a total economic collapse. It's not. If you believe that any company should ever go out of business you have to be okay with some going out of business and firing employees.

The only reason dead is arguing like this is because he believes all rich people must get to keep getting richer to maintain the system as currently designed with maximum status quo stability.

Most people do not in fact want maximum status quo stability.

[deaddmwalking]

You say you got a real solution
Well, you know
We'd all love to see the plan

[Kaelik]

The solution to not making things worse in the specific way that biden does each time he does is to not do the thing that biden does. The solution to a poorly managed bank buying regulators to do risky things and then all its depositors doing a coordinated bank run on purpose because the bad decisions caught up is to simply only provide the legally insured deposits and let any capitalist ever eat a loss for the first time since 1992.

The solution to the problem that the people in power have all been collectively making the worst decision on every issue for decades is to remove them from power and put into power people who will make good decisions.

Now obviously you oppose all this and will spend 2024 campaigning for biden because you don't want decisions that prioritize making the world a better place because you prefer a world where people like you never have to give up anything at all no matter what it costs people not like you.

But you not wanting something is not the same thing as it not being possible or not a good idea.

[MGuy]

Just a few quick notes just to point out some of the dishonesty dead is putting out here because while I could, making longer posts is a pain.
No one has made a compelling case for why these bank failures would have spread given the nature of these banks. Almost everyone who has written on this that even hinted at a contagion has always laid down an incredibly load baring 'IF' but rarely followed it up with anything that would explain how it'd happen. People need banks in our system. They literally have no other choice.

Number of people who own homes is not the same as number of people buying homes. Even in the thing dead posted it straight up says the housing market has been decimated and in every think piece about the housing market that has been released in the last few years people have been talking about how large corpos have been buying up every property they can.

Median income is not average income. Average is about 32k.

In that last bit about wanting to see a plan I have to put out there that every time a progressive solution exists deaddm has been there to regurgitate a think piece line about how it probably can't work because socialism is evil.

[deaddmwalking]

Paul Krugman, a different Nobel Laureate has an article in the NY Times about the SVB situation.

But was it a bad decision? I’ve heard four basic kinds of criticism. One is ridiculous. Two are dubious. But the last one has me a bit worried, although I think it’s probably wrong.

[PseudoStupidity]

I know this was addressed, but I want to talk about just how disgustingly dishonest (or completely idiotic) dead's claims are.

Yes, I think 'regular people' in the US can and do buy houses. It appears that 65% of households own their home.

Dead, this is households. It says nothing about the number of families that are owning their own place and means you are considering families where adults live with their parents or grandparents to own their own home (which is common in some places, but in the US that's certainly not called owning your own home).

According to the US Cenus, over 60% of workers have a retirement plan, and the majority have a 401(k) which typically includes stocks. While that source only shows 35% of workers with a 401(k), Gallup indicates that 55% of Americans own stock.

You know people can have a 401k and an IRA, right? I have personally not met anyone who has an IRA but not a 401k, but I know lots of people who have both. I'm guessing they're counted separately in your first link.

Your second one, about 55% of Americans owning stock, is fucking pointless. The distribution is obviously skewed towards the wealthy. The people who own noticeable amounts of stock are old white people (duh). Does that sound like regular people? No! That is old, wealthy people. Most regular people don't own stock, because regular people are most frequently living paycheck to paycheck.

Look, it's easy to assume that 'most people are just like me', but that's definitely not what I'm doing. I know the median household income in the United States is $74k.

Motherfucker you are literally doing that! When you say that ~50% of people in the USA owning stock is evidence that regular people own stock you're saying the top 50% richest people in the country are the regular ones. That is a group you are a part of, and you are ignoring the group you are not a part of. What the fuck do you think you're doing!? I don't know if you're completely clueless as to how people live or if you're a liar, but I am leaning towards you genuinely thinking regular means "top 50% of wage earners" and that blows my mind. Regular people in the US are living paycheck to paycheck and barely have savings if they have them at all.

You do not understand the material conditions of the country you live in, that is truly embarrassing.


Edit: You're so out of touch you don't share Wayback Machine links to NYT articles! Here's the link to another rich guy saying bailing rich people out is the right move if you want to inflict that upon yourself without paying: https://web.archive.org/web/20230317050 ... ilout.html

I'm half expecting Dead to say "it's one banana, how much could it cost, $10?" in his next post.

[deaddmwalking]

Wow, I can't believe I missed MGuy being stupid.

Median income is not average income. Average is about 32k.

Median income means half the households earn LESS and half the household earn MORE. If you have 3 people, one earning $0, one earning $25,000, and one earning $1,000,000, the median would be $25,000. But the average would be $341k.

That's relevant because the richest people earn so much more money than the poorest people that the average is always higher than the median.

Here's another source with 2023 data

The average personal income in the U.S. is $63,214.

The median income in the U.S. is $44,225.

The average American annual real wage was $67,521 in 2020.

The average U.S. household income is $87,864.

The median U.S. household income is $61,937.

Please note that the AVERAGE is higher than the Median.

I assume that MGuy is too slow to recognize that I was talking about Household Income rather than Individual Income

[Kaelik]

Median income means half the households earn LESS and half the household earn MORE. If you have 3 people, one earning $0, one earning $25,000, and one earning $1,000,000, the median would be $25,000. But the average would be $341k.

Your link was Median HOUSEHOLD income, so if you had three people like that it might turn out that the 1 mil person also got their three kids cushy fake jobs making 500k and they count as four households while the 25k and the 0 married, lived together, had three kids, who never left their parents home, and are now adults alos making 25k.

Which is not to say anything about the specifics of how families do live in the US, but is to not you linked a STAT about household income, but then you make up examples about individual income to imply individual median income is very high.

Saying "Ah hah, Mguy failed to realize that I was saying a MEANINGLESS stat instead of a meaningful one, so jokes one him" isn't an own on Mguy.

[MGuy]

Wow, I can't believe I missed MGuy being stupid.

Median income is not average income. Average is about 32k.

Median income means half the households earn LESS and half the household earn MORE. If you have 3 people, one earning $0, one earning $25,000, and one earning $1,000,000, the median would be $25,000. But the average would be $341k.

That's relevant because the richest people earn so much more money than the poorest people that the average is always higher than the median.

Here's another source with 2023 data

The average personal income in the U.S. is $63,214.

The median income in the U.S. is $44,225.

The average American annual real wage was $67,521 in 2020.

The average U.S. household income is $87,864.

The median U.S. household income is $61,937.

Please note that the AVERAGE is higher than the Median.

I assume that MGuy is too slow to recognize that I was talking about Household Income rather than Individual Income

So when we're talking about how much an average american makes that is a thing you can type into google. If someone does not do that you can bet that they are being deliberately dishonest. Trying to recast that as being 'slow' is an interesting way to cover up dishonesty.

Edit: Just to dig into this a little bit more, for those who don't live stateside, average person is making about 1000 a week (This is a little more than I make btw). With taxes that goes down to about 700 or so a week. Average workers in the us are pretty firmly in the 30k or so region and many adult age americans are disabled or otherwise not working (which drags that average down). So whatever household figure that looks at working households (likely with multiple people living under the same roof) does not tell the american story.

Double Edit: My sister just reminded me. It also doesn't account for people working multiple jobs or a fuck ton of overtime. My sister is a prime example of someone working close to 60 hours a week to get over that average.

[deaddmwalking]

Your link was Median HOUSEHOLD income,

Yeah, so MGuy talking about Average Individual Annual Income didn't make any sense. I specifically provided a link that had average/median PERSONAL and average/median HOUSEHOLD income to show why he was confused (mistaking household for personal).

He was also specifically an idiot to try to claim that I was using Median to inflate my numbers when it had the opposite effect - as anyone with access to Google can attest.


Edit - And yes, of course household income may include multiple working people. When I first brought it up I mentioned my household where my wife and I both work with a COMBINED household income of $200k. If I made that much as personal income and my wife didn't work at all, we'd still have a household income of $200k. Talking about the 'average income in my household' as $100k would significantly overstate our expenses by implication - since we don't maintain individual households we don't have to pay rent/utilities etc 2x.

This Census Data claims that the average household is 2.6 persons, the median HOUSEHOLD income is $69,021, and the per capita income is $37,638.

Per capita numbers include non-working children. If I included my children (3) and tried to divide up my household income by the total number of people (5) it would look like we're making (individually) $40k annually. Again, talking about my children as if they had income of $40k and separate expenses would be misleading. The point of talking about HOUSEHOLDS is that the household is a unit of people sharing income and expenses; it doesn't really matter if one person earns all the money and the other doesn't (though it would if we were talking about AVERAGE individuals).

Since this is a gaming forum, I'm sure nobody will mind an extra math step - if you look at the Business section and take the Total Payroll $ divided by the total number of working people, the actual AVERAGE wage for WORKERS is $57k.

[MGuy]

Your link was Median HOUSEHOLD income,

Yeah, so MGuy talking about Average Individual Annual Income didn't make any sense. I specifically provided a link that had average/median PERSONAL and average/median HOUSEHOLD income to show why he was confused (mistaking household for personal).

He was also specifically an idiot to try to claim that I was using Median to inflate my numbers when it had the opposite effect - as anyone with access to Google can attest.

You know what I'll take the L on that. I think most people are single and at the end of the day I believe most people are looking at paychecks far closer to 30-40k than fucking 70-80k but as I have been reminded a lot of people have two jobs or work a lot of overtime which would increase that household number even if each individual job is paying less. So I'll carry that L in my heart. Since that's the only thing you were willing to contest I take it that you realized all the other bullshit you were spouting doesn't hold up?

Edit: I did not look at per capita. I looked say average wage. Which is determined by federal income taxes which do not count dependents and I went from there.

[Kaelik]

This Census Data claims that the average household is 2.6 persons, the median HOUSEHOLD income is $69,021, and the per capita income is $37,638.

Per capita numbers include non-working children. If I included my children (3) and tried to divide up my household income by the total number of people (5) it would look like we're making (individually) $40k annually. Again, talking about my children as if they had income of $40k and separate expenses would be misleading. The point of talking about HOUSEHOLDS is that the household is a unit of people sharing income and expenses; it doesn't really matter if one person earns all the money and the other doesn't (though it would if we were talking about AVERAGE individuals).

It actually matters a lot because your made up very fake no one will get credit claim was a claim about people, not a claim about households, and we actually care about how people are doing, not how households are doing. If we have a bunch of people suffering it's not in any meaningful way counteracted by the knowledge that a specific person is having a great time.

Stats about how many "households" have homes or how many "households" have incomes that look nice are not useful in telling us how the average person is doing, because people are not households. Finding out how the average PERSON is doing does not involve looking at the average household income at all.

I here use "average" because while lots of people are using diferent terminology, the median and the mean are both averages, and this point holds regardless of using medians or means.

Hence "Mguy foolishly thought I was citing to evidence that would have proved my claim, unaware that I was actually citing to evidence that is pretty much completely irrelevant." is not a great own on Mguy.

[Kaelik]

Also, just want to briefly remark that yes, it is true that the Fed is doing bad things. You know who nominated the current Fed chair leading this very bad process? It was Joe Biden!

Which is maybe some more evidence that actually, following deadDM's stability seeking political advice is actually the one guaranteed way to ensure you will in fact end up with bank runs in your future.

[deaddmwalking]

Elizabeth Warren calls for lifting FDIC insurance cap.

She is not in favor of an UNLIMITED cap.

Midsize banks plead for unlimited FDIC backstop for two years

[deaddmwalking]

Fed and other central banks try to head off crisis by keeping dollars flowing

There continues to be concern from banks that they need to increase their cash reserves - one way they achieve this is by ceasing to offer loans. Reducing loans does slow the economy and reduce inflation (goals driving the Fed's rate increases). Moves to increase liquidity would be another sign that the Fed is more likely to keep rates the same next week (rather than raising them 75 basis points as was expected March 1st, or 50 BP which was expected immediately after SVB failed). There’s even a chance that they lower them 25 BP (but I am highly skeptical of that).

Mostly outside of the news is the Fed's efforts at Quantitative Tightening, but the New York Times has a good article about it.

[MGuy]

It really doesn't matter much what Warren is calling for. She criticized Biden for keeping a shitty Fed chair a while ago and nothing was ever done with that (and that continues to be the case). Sanders talked about how this kind of bank failure was bound to happen yet again when the regulations got rolled back in the first place and despite that this administration did not take any adequate steps to repair the damage. Also remember that the Fed revealed that they believed increasing unemployment, IE punishing labor, was a core part of their plan to address inflation. Something they have not stepped away from.

I don't know how any of this random information ties into the administration deciding to bail out these banks other than the reminder that the Fed responds to other rich people losing money at versus labor advocates pointing out that is actions are going to hurt labor.

[deaddmwalking]

So a lot of rich people lost money because they had invested in Silicon Valley Bank. That is, they bought shares (millions of them) at ~$300 and they became worthless overnight. Some people lost a lot of money.

The people who did not lose money were the people who deposited their money with SVB. While the depositors to this bank skew wealthy, people like Actress Sharon Stone weren't part of the bank's management and they weren't shareholders. Having shareholders lose money instead of customers is mostly good - and if the bank had been bailed out like 2008 than the investors would have not lost money.

As for the Fed waging a war against labor, I agree. That's why I am against them continuing to raise rates.

[Kaelik]

But also for renominating people who make them raise rates. Very big brained.